FirstEnergy rate settlement proposal sets stage to boost fixed costs

An Ohio utility’s plan to guarantee sales for some of its power plants also includes a provision that advocates say will further discourage energy efficiency and distributed generation.

Among other things, the proposed FirstEnergy settlement has language that sets the stage to triple the fixed cost portion of distribution charges for residential customers over a three-year time period, a tactic that has been deployed by utilities around the country.

Opponents have sought to reopen the record so they can challenge the settlement, which they say is at least as bad as the company’s original plan, which critics dub a “bailout” for uncompetitive generation plants.

Last week, a hearing examiner agreed that the proposed plan raised new issues and ordered a new round of hearings to begin January 14.

“We remain opposed to the latest backroom deal in this proceeding,” said Shannon Fisk of Earthjustice, which represents the Sierra Club in the case.

‘Punished for trying to conserve energy’

The proposed settlement shortens the term of FirstEnergy’s proposed plan from 15 years to eight and includes other provisions on plan costs. Additional terms call for grid modernization and would set long-term, non-binding goals for greenhouse gas emission reductions and renewable energy.

The settlement would also lead to reinstatement of energy efficiency programs that FirstEnergy cut last year. The deal filed with the PUCO would also give FirstEnergy a higher amount of “shared savings” from energy efficiency and a continuation of “lost revenue” charges to the extent that energy efficiency cut overall demand for distribution.

In addition, the agreement would lay the groundwork for a shift in how FirstEnergy’s utilities charge for electricity distribution. Currently, the lion’s share of distribution charges by FirstEnergy utilities depend on how much electricity a customer uses each month.

The proposal before the PUCO now calls for FirstEnergy to file materials that would set the fixed cost part of residential customers’ bills at 25 percent in 2019. The fixed cost share for that portion of the bill would climb to 75 percent by 2021.

Those terms would let FirstEnergy “migrate towards a more flat charge for electric distribution service, as opposed to one that’s based on consumption,” FirstEnergy spokesperson Doug Colafella said.

“It’s hard to know exactly” what the financial impacts on consumers will be, because FirstEnergy has not yet defined what it would include in the fixed cost portion of the distribution charges, said Rob Kelter of the Environmental Law and Policy Center.

In Kelter’s view, though, the arrangement would effectively “kill” whatever savings customers might otherwise see from FirstEnergy bringing back its energy efficiency programs.

“They’re sending customers a huge mixed message,” he said.

“We don’t think ratepayers should be punished for trying to conserve energy,” said Kathy Keller of AARP Ohio. The proposed terms would be especially burdensome for Ohioans who live on fixed incomes, she added.

Colafella said he did not know what incentive would remain to customers to manage their electric use under the distribution portion of their bills.

‘Higher upfront fees’

FirstEnergy would still have to file additional materials with the PUCO before the rate changes could take effect. Nonetheless, a PUCO order approving those terms now could arguably set a precedent for the future.

The relevant section of the settlement agreement is called “Transition to Decoupled Rates,” and Colafella noted that “there have been a lot of people that are pushing utilities to embrace decoupling.”

“Decoupled rates are basically moving towards a flat charge for electric services versus being a demand-based charge,” Colafella added. Generation charges would presumably continue to be based on consumption.

But true decoupling “is nothing like what the company is pursuing,” said Samantha Williams at the Natural Resources Defense Council.

The type of decoupling mechanism that NRDC and others support would basically adjust rates each year to reflect actual distribution costs and customers’ electricity usage. Williams says that arrangement can be “a critical tool that frees up utilities to help their customers use energy more efficiently.”

“But FirstEnergy’s proposal is more akin to a fixed charge increase,” Williams continued. Such an arrangement “undermines conservation efforts and locks homeowners and businesses into higher upfront fees before they even turn the lights on. This only benefits FirstEnergy’s bottom line.”

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The Environmental Law & Policy Center, Natural Resources Defense Fund and Sierra Club are members of RE-AMP, which publishes Midwest Energy News.